Asset managers potential new losers

Comment: Deficit reduction and plans to scale back public schemes could trim client prospects for fund managers

By

Elizabeth Pfeuti

Updated: May 13, 2010 7:58 p.m. GMT

While banks in the UK could end up escaping lightly from plans to break them up, asset managers could be the unwitting losers in the UK's new coalition government’s plans to reform public sector pensions, with hints that the deficit-stricken system could be curbed, leaving fewer available funds to invest.

While Prime Minister David Cameron had been accused for some time of trying to bankrupt retired school teachers and town hall clerks, it was actually Liberal Democrat leader and deputy Prime Minister Nick Clegg who brought up the subject of public sector pensions, quite unprompted, during televised leader debated last month.

Clegg set out his stall: "A tax on banks is now unavoidable. Tax Credits. We need to look at public sector pensions. These are big decisions we need to take."

The shortfall between public sector pension scheme assets to their liabilities is believed to have reached around £1 trillion (€1.2 trillion), according to current estimates within the actuarial community. The Conservative manifesto pledged to cap public sector pensions at £50,000 as a starting point to tackle this deficit.

Toby Nangle, director, multi-asset group & fixed income and currency team at Baring Asset Management, said: "Estimates from the government actuary as to the scale of these off-balance sheet liabilities are enormous, and that is using an inflated discount rate: the true scale of this hidden debt is larger still."

Clegg is no doubt aware of these numbers. He answered a question later in the television debate about funding care for the elderly thus: "I think it is one of those issues, a bit like public sector pensions. I also think the scale of the public sector deficit is one of these issues where I think if we could introduce a new kind of politics in this country, not the old style of politics, we could actually come up with a solution everybody could agree to."

It was not the first time the party had raised the issue.

Last month in a Q&A with Financial News, Vince Cable, then Lib Dem Treasury spokesman, now responsible for "business and banks", said: "The Liberal Democrats would immediately establish an independent commission, along the lines of the Turner commission which looked into other pensions issues a few years ago, to examine the long-term future of public sector pensions.

Both parties are now in charge and have a ballooning deficit to deal with; they have agreed to form this commission as part of the coalition deal so the asset pool investment managers fish in may get a little shallower.